Slovakia: Government Weakens Second Pension Pillar

Employer Action Code: Monitor

The Slovak parliament approved pension reform that reduces contributions to the second pillar of the state pension system and creates a window for workers to elect to return to the first pillar. Contributions to the second pillar are invested in individual accounts managed by private sector pension funds, while the first pillar is a publicly managed, pay-as-you-go defined benefit system. The changes are intended to help meet the government’s fiscal targets and turn back the previous government’s economic reforms.

Key Details

Effective September 1, second-pillar social insurance contributions were reduced from 9% to 4% of gross wages and, conversely, contributions retained for the first pillar increased from 9% to 14%. Starting in 2017, contributions to the second pillar are scheduled to rise by 0.25% annually, reaching a final 6% in 2024.

Until the end of January 2013, the second pillar is open to all workers, with those already in the second pillar being given the opportunity to switch back entirely to the first pillar. Since 2005, the second pillar has been mandatory for young workers entering the labor market, and up until 2006, those under age 52 had a single opportunity to enroll in this retirement option. The government has estimated that 60,000 people will leave the second pillar, while only 10,000 will join.

Starting in 2017, the retirement age (currently 62) will be linked with the lengthening of average life expectancy.

Beginning in 2017, social security pensions will be indexed solely on inflation. The current formula, based on average salary increase and inflation, will be phased out starting in 2013.